Legal Alert: Transfer of Assets or Merger is Not Always Required to Impose Successor Liability Under the FMLA, According to the Sixth Circuit

Date   Jul 16, 2006
In the first federal appeals court decision to address the issue, the Sixth U.S. Circuit Court of Appeals has held that a merger or transfer of assets is not always a precondition to successor liability under the Family and Medical Leave Act.
In the first federal appeals court decision to address the issue, the Sixth U.S. Circuit Court of Appeals has held that a merger or transfer of assets is not always a precondition to successor liability under the Family and Medical Leave Act (FMLA). See Cobb v. Contract Transport, Inc. (6th Cir. June 28, 2006). In Cobb, the court held that the years Cobb had worked for a company that held a federal contract prior to the defendant, Contract Transport, should be counted as time worked for Contract Transport. Accordingly, the Sixth Circuit held that Cobb was covered by the FMLA and reversed the lower court's decision throwing out Cobb's case.
Here, Cobb was a truck driver who worked for Byrd Transportation delivering mail for the United States Postal Service. When Contract Transport underbid Byrd for the job of delivering the mail on the routes Cobb worked, Cobb was terminated. Contract Transport subsequently hired Cobb (and many of the other former Byrd truck drivers) to perform the same job on the same route as he had when he worked for Byrd. A few months after Contract Transport hired Cobb, he missed work to have gallbladder surgery. Contract Transport terminated Cobb for failing to make himself available to work and Cobb sued the company claiming violations of the FMLA.
The trial court granted summary judgment in favor of Contract Transport, throwing out Cobb's claims, because he was not an eligible employee under the FMLA (he had not worked for Contract Transport for at least twelve months and 1,250 hours as required by the statute). The trial court refused to consider whether Contract Transport could be liable as a successor employer because there was no transfer of assets or merger between Contract Transport and Byrd. The Sixth Circuit reversed this decision.
An employee is only eligible for FMLA leave after working for a covered employer for at least twelve months and at least 1,250 hours. Work for a covered employer includes work performed for both a covered employer from whom leave is requested and any previous employer to whom the current covered employer is a “successor in interest.” In determining when an employer will be considered a successor in interest for the purposes of the FMLA, the Sixth Circuit relied on federal labor law. Because federal labor law cases do not require a merger or transfer of assets as a precondition to the imposition of successor liability, the Sixth Circuit declined to impose this requirement in FMLA cases.
The court noted that the labor law concept of successor liability requires courts to balance the equities of imposing a particular legal obligation in a particular situation, considering 1) the interests of the defendant-employer, 2) the interests of the plaintiff-employee, and 3) federal policy embodied in the relevant federal statutes. Here, Cobb sought a determination that Contract Transport was a successor in interest to Byrd for the purpose of imposing the FMLA's duty to grant sick leave to seriously ill employees. The FMLA's duty to provide sick leave arises through statute and an employee's tenure. "Because the source of the duty seemingly has no relationship to a company's physical assets, we see no reason to hold that a merger or transfer of assets is a precondition to the imposition of the duty. Therefore, we decline to hold that a merger or asset transfer is always a precondition to the imposition of successor liability under the FMLA."

The court held that the ultimate inquiry always remains whether the imposition of the particular legal obligation at issue would be equitable and in keeping with federal policy. Here, the court found that the imposition of liability would be equitable in light of the federal policy embodied in the FMLA. The court noted that the purpose of the twelve month, 1,250 hour eligibility requirement was to exclude seasonal and temporary employees, not employees like Cobb, who only changed employers because of the government contractor bidding process. The court held that Cobb's employment had been continuous -- he carried U.S. mail on the same route, with the same relay stops, for the past three years. "In reality, it is as if Plaintiff works for the USPS and not for one particular trucking company. Only the management, not the job, has changed."
The court also held that declining to apply successor liability to companies competing for government contracts circumvents implementation of the FMLA. The Postal Service accepts bids every two years; if a new company is not required to grant truck drivers FMLA leave, regardless of how long the driver has been on the route, the new companies will have lower FMLA costs and correspondingly be at an advantage in the bidding process.

The court also rejected Contract Transport's argument that Cobb was not an eligible employee because his worksite, the truck stop at which he picked up his truck to begin his route, did not have more than 50 employees. Relying in part on the FMLA's implementing regulations, the court held that Cobb's worksite was the location from which Contract Transport's dispatchers worked, at which more than 50 employees were employed.

Employers' Bottom Line

The Sixth Circuit has adopted an expansive interpretation of the FMLA in this case. Because of the unique situation presented by the bidding process in government contracts, it is possible the decision will be limited to similar factual scenarios. Thus, government contractors should be particularly concerned with this decision. However, it is possible that other courts will follow the Sixth Circuit's analysis and may even extend it to other types of factual situations.
We will continue to keep you updated with regard to this developing area of the law.
If you have any questions regarding this decision or the FMLA in general, please contact the Ford & Harrison attorney with whom you usually work.